Part I: Two Lemonade Stands, 10,000 Runners: The Unique Opportunity in Indian Banking

Written By Eleonore Lorijn

Part I: Setting the Scene

India’s banking sector stands at a compelling inflection point.

When you think of the fastest growing economy in the world, with a GDP of $4 trillion and a population of just under 1.5 billion, averaging 29 years old, it’s easy to assume the existence of an over-congested financial banking system to support it.

This assumption isn’t unreasonable given the 4000+ domestic deposit-taking banks active in the US (aka the nation that has dominated the financial ecosystem for centuries) as a reference point. However, the intriguing reality is that despite its backdrop, India has less than 100 domestic deposit-taking banks. For perspective, that’s about 1/40th of what the US has, to support a population of 4x the US.

Adding to the story: India’s banking system is additionally so tightly constrained by the Reserve Bank of India’s (RBI) with regulatory frameworks and onerous licensing requirements, that we expect only 5–10 new banks to be established in the coming decade.

So… what does this mean and why are we writing about it?

It doesn’t take a mathematician to see that these numbers don’t add up. For the runners amongst us, this opportunity concentration is like being one of just two lemonade stands allowed by city regulation to exist at the finish line of a 10,000-person marathon. You don’t have to like lemonade (or running, frankly) to appreciate that demand at scale creates extraordinary potential for those in position.

Adding to its current day supply and demand context, what makes the Indian banking market so interesting is indeed its future potential. To summarise for those who aren’t already aware of India’s growth story: over the past 25 years, India has averaged a nominal GDP growth rate of ~12%, driven by real economic expansion (~6% real growth) and inflation (~6%). During the same period, banking sector assets and deposits have grown even faster, strongly correlating with nominal GDP. The extensive research that exists about India’s projections point to how this trend is likely to continue over the next 25 years, fuelled by more population growth, increasing financial inclusion, rapid urbanisation, digital adoption, credit expansion, and a young, mobile and educated population1. In this environment, the Indian banking industry is expected to grow at a 12–15% compound rate (in INR terms), outpacing estimates of US growth at ~4-7% (in USD terms) per year.

So… congrats! Not only did you reap the gains of your lemonade this year, but you also managed to secure your stand for the next decade - with marathon participants expected to grow significantly year on year. (I do hope you like lemonade at this stage).

A final and key part of this story is profitability

Whilst the ratio of two drink stands to 10,000+ thirsty runners seems exciting economically, the reality won’t be if the lemonade is sold at cost. The same applies to India’s banking sector: growth in customers and deposits is only half the story. True value creation will depend on how efficiently these banks are managed to serve this vast market while maintaining healthy margins in a highly regulated environment.

Well… we’ve done the hard work for you and bear good news: Indian banks are profitable. Bank profitability is commonly assessed through five primary indicators: operating profit growth, return on assets (ROA), return on equity (ROE), cost-to-income ratio (CIR) and non-interest income to total operating income ratio – metrics that generally remain strong across the board for India. A February 2025 update confirming that India jumped from sixth to fourth place in a global ranking of banking sector net profit share2 felt almost unsurprising given the industry’s 16% YoY growth in net profit (FY20253), according to BCG’s study of 37 Indian deposit-taking banks earlier this year4.

Now, if you’re still with us – thank you. We aren’t writing this pretending to pioneer research on India’s growth potential, or on its changing regulatory landscape, or on the profitability of the nation’s banks. These facts and statistics exist and are public. What we are doing is connecting dots. We are piecing these individual identified realities together in a way that we haven’t seen published yet, and making it relevant so that you, the reader, can walk away with actionable insights.

To keep our trusty analogy alive: we think that India’s macro and micro contexts haven’t just given us the necessary ingredients – they’ve practically pre-squeezed the lemons. All you need to do is show up with a pitcher.

Disclaimer

The analysis and opinions expressed in this article are intended solely for informational purposes and do not constitute investment, financial, legal, or other professional advice. They are not intended to recommend or solicit the purchase or sale of any financial products, securities, or services. The content is based on publicly available information believed to be reliable; however, no warranty is provided as to its accuracy, completeness, or timeliness. Forward-looking statements, projections, and analogies are inherently uncertain and are provided only to illustrate potential industry dynamics. Actual outcomes may differ materially. Neither the authors nor the publishing entity accept any liability for decisions made or actions taken based on this article.

Eleonore Lorijn
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Part II: Two Lemonade Stands, 10,000 Runners: The Unique Opportunity in Indian Banking